Review Questions
For The Economics of Poverty: History, Measurement,
and Policy by Martin Ravallion
Caitlin Brown and Martin Ravallion
Department of Economics, Georgetown University
Washington DC., 20057, USA
CONTENTS
PART 1: HISTORY OF THOUGHT ................................................................................... 2
CHAPTER 1: ORIGINS OF THE IDEA OF A WORLD FREE OF POVERTY ........................ 2
CHAPTER 2: NEW THINKING ABOUT POVERTY AFTER 1950 ........................................ 4
PART 2: MEASURES AND METHODS ............................................................................. 6
CHAPTER 3: MEASURING WELFARE .................................................................................. 6
CHAPTER 4: POVERTY LINES ............................................................................................... 7
CHAPTER 5: POVERTY AND INEQUALITY MEASURES .................................................. 9
CHAPTER 6: IMPACT EVALUATION .................................................................................. 15
PART 3: POVERTY AND POLICY .................................................................................. 17
CHAPTER 7: DIMENSIONS OF POVERTY AND INEQUALITY ....................................... 17
CHAPTER 8: GROWTH, INEQUALITY AND POVERTY ................................................... 20
CHAPTER 9: ECONOMY-WIDE AND SECTORAL POLICIES .......................................... 24
CHAPTER 10: TARGETED INTERVENTIONS .................................................................... 26
CASE STUDY: WORKFARE IN INDIA ................................................................................. 28
PART 1: HISTORY OF THOUGHT
CHAPTER 1: ORIGINS OF THE IDEA OF A WORLD FREE OF POVERTY
1. What is GDP? What does it include and what does it leave out?
2. Describe briefly how to determine what proportion of a population live below a poverty line.
3. Explain why 1820 is considered a turning point for the world economy. How has the global
incidence of extreme poverty changed from 1820 onwards?
4. What is the most common pre-modern definition of distributive justice and why was it
important to how poverty was addressed?
5. What did mercantilism see as the economic goal for society? Why was poverty seen as
essential?
6. A widely held view around this time was that there was a “utility of poverty” (Furniss, 1920).
What did Furniss mean by this term?
7. Draw a graph representing the labor-leisure decision for a household. Suppose that the wage
rate increases. Illustrate the case in which a higher wage rate results in less work effort, as
was argued by those who claimed that there is a “utility of poverty.” Consider other
possibilities.
8. What is the difference between an “inferior” and a “normal” good? Explain why leisure
could be considered a normal good and the implications this has on hours worked.
9. Schooling for the children of poor families was widely considered wasteful until well into the
19th century in both Britain and Western Europe. Why?
10. What is a poverty trap? How could a household become stuck in a poverty trap?
11. As noted in Section 1.2, at one point in her book about life in a Mumbai slum, Behind the
Beautiful Forevers, Katherine Boo writes that every slum dweller knew that education was
one of the three ways out of poverty (the other two being entrepreneurship and
politics/corruption). However, at another point in the same book, with reference to Sunil, a
young scavenger in the same slum, Boo writes that: “He’d sat in on [the English class taught
in the slum] for a few days, mastering the English twinkle-star song, before deciding that his
time was better spent working for food.” How can economics help reconcile these two
seemingly different views?
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12. What is the distinction between the “protection” and “promotion” role in antipoverty
policies? List an example of a policy focusing on protection and a policy that focuses on
promotion.
13. When did social policies aimed at helping the poor arise in Europe? Why were such policies
not popular before?
14. What is a “workhouse” and why can it be considered to be “self-targeted”?
15. Descibe the Old Poor Laws? Were they protection or promotion policies?
16. What was the motto of the French Revolution? How were these words interpreted and what
implications did these interpretations have for understanding poverty?
17. What is the difference between horizontal and vertical inequality? Which is more important
to consider when implementing an anti-poverty policy?
18. What ar some of the arguments that emerged in the 19th century as to why the state to play a
greater role in addressing poverty?
19. What was the essence of Adam Smith’s critique of mercantilism?
20. What is an “efficient market”? List the assumptions for a competitive economy to be
efficient.
21. What is “targeting” and why is it an important consideration for anti-poverty policies?
22. What are some important contributions of the First Poverty Enlightenment? Did the First
Poverty Enlightenment bring any important changes to the lives of poor people?
23. Why was there such pessimism about the scope for poverty reduction out of the new
technologies and higher growth rates seen from the time of the Industrial Revolution?
24. Use a labor supply and demand curve to illustrate Thomas Malthus’ argument on real wages.
Why might he not be correct?
25. What is Ricardo’s “law of diminishing returns”? How would this affect poverty reduction?
26. Why did Malthus and others argue against the Poor Laws in early 19th century England?
What political factors might have also been at work?
27. Briefly explain utilitarianism. How does utilitarianism’s definition of welfare differ from that
of mercantilism?
28. Why is the assumption of diminishing marginal utility of income important for assessing
income inequality under utilitarianism? Is it necessarily the case that lower inequality is
better from a utilitarian perspective?
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29. What is the free-rider problem and how might it hinder anti-poverty programs?
30. Why did Marx believe that inequality would rise under capitalism?
31. How can Engel’s Law be used to explain the effects of a tax on basic food items? When
might it not hold?
32. Describe the findings by Booth and Rowntree. Why are household surveys important in
poverty research?
33. What is a regression line? What parameter in the fitted regression equation is used to
determine the direction of the relationship between the independent and dependent variables?
How can omitted variables bias regression results?
34. What is Pareto optimality? Is it useful in assessing the impacts of a policy on welfare?
CHAPTER 2: NEW THINKING ABOUT POVERTY AFTER 1950
1. When did the Second Poverty Enlightenment begin? How did it differ from the First?
2. What are the key conceptual differences between “welfarist” and “nonwelfarist” approaches?
3.
“Welfarism invariably leads us to focus on income poverty alone.” Do you agree?
4. How does Sen’s capabilities approach to poverty differ from the welfarist approach?
5. What is market failure? What implication does it have for poverty?
6. Explain how asymmetric information may lead to market failure. How might this lead to
borrowing constraints for poor people?
7. What is the “difference principle”? How is it related to the “veil of ignorance”?
8. What is the difference between the social welfare functions for utilitarianism and Rawls’
“maximin” principle? Which do you think is the more “egalitarian” conception of social
welfare?
9. How did Galbraith and Harrington view poverty in America?
10. What was the War on Poverty? What were some of the policies implemented? Were the
policies aimed at protection or promotion?
11. Explain what is meant by a 100% marginal tax rate. What problem does it create? How does
a negative income tax or an earned income tax credit solve this problem?
12. How does the U.S. set its official poverty line? How does the U.S. poverty line compare to
other rich countries?
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13. Since the 1970s, there has been little reduction in the incidence of poverty in America. List
reasons why this has happened despite economic growth.
14. What is the difference between absolute and relative poverty? Was poverty viewed as
absolute or relative in the First Poverty Enlightenment? What about the Second?
15. What is a “strongly relative poverty line”? What are the two arguments made for strongly
relative measures? Why might a strongly relative line not be appropriate for developing
countries?
16. What is a basic income guarantee scheme? Supposing that this scheme is financed through a
progressive taxation system, what is the net transfer to the rich?
17. What is the relationship between the share of agricultural output and GDP? Why were
structural transformations expected to be poverty reducing?
18. What were the four “re-balancings” after the early nearly exclusive focus on economic
growth in developing countries? Discuss the complementarities between them.
19. List some arguments regarding the effect globalization has had on the world’s poor. Why is it
difficult to determine the globalization’s true effect?
20. What was the poverty goal in the Millennium Development Goals? Why might a similar
reduction in relative poverty be harder to achieve?
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PART 2: MEASURES AND METHODS
CHAPTER 3: MEASURING WELFARE
1. What is the welfarist approach to poverty measurement? What are the main criticisms to
using this approach?
2. Suppose there is an increase in the relative price of food in the consumer choice problem in
Box 3.1. What will happen to the budget constraint? Will the consumer be better or worse
off?
3. With reference to Box 3.1, verify for yourself that an increase in the relative price of food
will entail a substitution away from food toward clothing if utility is held constant. What
about when utility is not constant? Suppose that the consumer is also a farmer who produces
food. The higher relative price of food comes with a higher total budget, due to the gain to
the farmer’s income. Is it now true that food consumption will necessarily fall with higher
food prices?
4. How can the capabilities approach be interpreted in terms of utility?
5. How does the inequality of opportunities approach to welfare differ from the welfarist
approach?
6. Suppose that a random sample is drawn of the households in some well-defined geographic
area. Another sample is then drawn of the nearest neighbor to each of the original sampled
households. Are these two samples independent? What implication does it have for
interpreting the results of the survey?
7. Is it necessary to survey the same household each year when making poverty comparisons?
8. Why is “attrition” in panel data a concern for researchers?
9. Is it a good idea to pay households to participate in a survey?
10. Why is consumption sometimes a better indicator of welfare than income? Which will tend to
have higher inequality, income or consumption measures of welfare?
11. Suppose you have an income of $20 per week now and for another 20 years and you know
with certainty that you will receive a lump sum payment of $100 in 20 years time, and
suppose that the interest rate is 5%. Show that your wealth (by the definition in Box 3.10) is
$286.93.
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12. What is the Permanent Income Hypothesis (PIH)? What are the implications of the PIH for
welfare measurement?
13. Redraw the figure in Box 3.1 for the inter-temporal consumption choice problem. What is the
intercept of the inter-temporal budget constraint and what is its slope? Discuss the effect of a
higher rate of interest on consumption behavior.
14. What are two types of measurement error that occur in household surveys? How can these
errors be addressed?
15. Is income under-reporting in surveys an issue for measuring poverty and inequality? Why or
why not?
16. How do you measure real consumption per adult equivalent? What are some issues that
should be considered when constructing an equivalence scale?
17. Why do prices matter in welfare measurement? How should they be weighted when forming
a deflator in measuring real consumption or income for the purpose of measuring poverty?
18. The OECD uses an equivalence scale that gives the number of equivalent adults in a
household with NA adults and NC children as 1+0.7(NA-1)+0.5NC. Using this scale, verify
that the consumption per equivalent adult of households A and B in Table 3.1 is identical to
the nearest integer at 30.
19. Why might you need to consider consumption allocations within the household? Give an
example to illustrate your answer.
20. Why might differences in the food share (the share of the budget devoted to food) between
different dates or different locations be deceptive for drawing conclusions about welfare?
21. What are the advantages and the potential problems in using self-assessments of welfare in
measuring poverty?
CHAPTER 4: POVERTY LINES
1. What are the arguments against using a poverty line to measure poverty?
2. In measuring welfare and setting poverty lines what is the “referencing problem” and how
does it differ from the “identification problem”?
3. Suppose you want to calculate a basic needs poverty line. What are the steps needed to do
this?
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4. How does the “cost of basic needs method” differ from the “food-energy intake method”
when setting poverty lines?
5. You have set poverty lines separately for both urban and rural areas in the country you are
working in and you used both the cost-of-basic-needs (CBN) method and the food-energy
intake (FEI) method. You find that the two methods give different rankings of urban and
rural poverty measures, with the measures being higher in urban areas using the food-energyintake method, but higher in rural areas using the CBN method. Why might this be? How
might you interpret the difference?
6. Explain how Russia sets their official poverty line. How does this compare to the method
used in the United States?
7. Two poverty measures in the United States are the OPM and SPM. How does the SPM
correct for the problems with the OPM?
8. What methods are used to update poverty lines over time? How might biases in a country’s
CPI affect the poverty rate?
9. Give possible reasons why national poverty lines tend to be higher for wealthier countries.
Discuss the implications of each reason for measuring global poverty.
10. It is common practice in Western Europe to set the poverty line at a constant proportion of
the current year’s median income for each country. What are the arguments for and against
this method? When the poverty line is set this way, what would happen to a measure of
poverty if all incomes rose by 10%?
11. What is a “weakly relative poverty measure” and how does it overcome some of the
problems faced by standard absolute and (strongly) relative poverty measures?
12. What does the graph for the weakly relative poverty line look like? Why doesn’t it have a yaxis intercept of zero? What value is taken by the elasticity of the poverty line to the mean
for strongly relative and weakly relative lines?
13. Are weakly relative lines necessarily welfare consistent? Can this be tested empirically?
14. What is the “Minimum Income Question” (MIQ) and how does it lead to a subjective poverty
line?
15. Why might qualitative questions similar to the MIQ be more useful than traditional
quantitative measures? How do these lines incorporate variables such as household size,
demographics or location?
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16. What are some issues with using the MIQ to estimate a subjective poverty line?
CHAPTER 5: POVERTY AND INEQUALITY MEASURES
1. What is the relationship between the Gini index and the Lorenz curve? How is the Lorenz
curve constructed?
2. Suppose that all incomes in a country rise by the same proportion. How does this change the
Lorenz curve?
3. How are the Lorenz curve, cumulative distribution function, density function and the quantile
function related to each other?
4. Consider a distribution of income for three people with incomes (1, 2, 3).
(a) Verify that the Gini index is 0.22. Draw the Lorenz curve. How would it change if
the distribution became (1.5, 1.5, 3)? How would it change if the distribution became (1,
2, 2, 3)? Consider the implications for inequality in each case, as compared to the (1, 2, 3)
distribution.
(b) Starting from the (1, 2, 3) distribution, consider a redistribution toward the middle,
such that the new distribution is (0.75, 2.5, 2.75). Do you think inequality is higher or
lower?
5. When inequality is high the Gini index can be quite unresponsive to changes at either end.
The world Gini index for incomes is about 0.65. Suppose again that there are only three
people, with incomes 1,2 and x. What would x need to be for this three-person economy to
have a Gini index of 0.65? More generally, suppose that the distribution (1, 2, x) has a Gini
index of G. Show that:
G
2  9G
2( x  1)
implying that x 
for G < 2/3
2  3G
3( x  3)
Verify that the relationship between x and G looks like the following graph:
9
.7
.6
Gini index
.5
.4
.3
.2
.1
.0
25
50
75
100
125
150
175
200
225
250
275
300
x in the distribution (1, 2, x)
6. The Gini index is very insensitive to even large changes in the income of the richest person.
Imagine doubling the income of the richest person, giving (1, 2, 2x). Show that the new Gini
index is 0.66. At the other extreme, imagine doubling the income of either of the poorest two
people, to give the distribution (2, 2, x) or (1, 4, x). Show that (either way) the new index
only drops to 0.64.
7. List the main axioms for inequality measures. What axiom does the Gini index fail?
8. What is the “scale invariance axiom”? Do absolute measures of inequality satisfy this axiom?
9. What is the “anonymity axiom”? What type of data do you need to relax this axiom when
measuring inequality?
10. What is “relative inequality” and how is it measured? How is relative inequality different to
absolute inequality?
11. What are Kolm’s “Rightest” and “Leftist” measures of inequality? What did he mean by
these labels?
12. “Inequality will always rise when incomes of the poor rise less than those of the rich.” Do
you agree? Explain.
13. List the major axioms for poverty measures. Which poverty measures satisfy all the major
axioms, and which do not?
14. What are the major differences between absolute and relative poverty measures?
15. If rich people tend to not participate as much in surveys will you under- or overestimate the
headcount index of poverty?
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16. Give a numerical example of how the headcount index doesn’t account for changes in the
distribution below the poverty line. Assuming that the poverty line is 2, calculate the values
of the index for each of the following distributions:
a. (1, 2, 3)
b. (1.5, 1.5, 3)
c. (1, 2, 2, 3)
d. (0.75, 2.5, 2.75)
17. Suppose that at date 1 the distribution of income is (1, 2, 3), while later, at date 2, it is found
to be (2, 3, 4). Verify for yourself that for a poverty line of 2 the reduction in the headcount
index of poverty is entirely due to growth in the mean, i.e., that the redistribution component
is zero. Now suppose the distribution at date 2 is (1.5, 1.5, 3) (as in question 1). Is the
change in poverty now due entirely to redistribution? Discuss how would your answer
depends on what measure of poverty you use.
18. Suppose that the initial rural distribution of income is (1, 2, 3, 4) while the initial urban
distribution is (3, 4). The poverty line is 2, so the overall poverty rate (headcount index) is
1/3. Now imagine that all of the rural poor move to urban areas and each of them gains 20%
in real income. Verify that the overall poverty rate falls to 1/6, yet the urban poverty rate
rises from zero to 1/4.
19. What is the minimum cost of eliminating poverty using transfers? Explain using the quantile
function. How does this differ from the maximum cost? What is the ratio of the two?
20. Give an example showing how the poverty gap measure fails the transfer axiom. How do the
Watts index and the squared poverty gap index address this issue?
21. What are the drawbacks of using more complicated measures such as the Watts index or
squared poverty gap index?
22. You find the following table in a poverty assessment for the country Labas:
Headcount index (%)
Poverty gap index (x100)
Rural
45
20
Urban
20
10
Total
35
18
Is there anything you can identify that is wrong with these numbers?
23. Consider the poverty profiles in the following table:
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Urban ( Hiu )
Rural ( H ir )
Overall poverty rate ( H i )
Country A
0
Country B
HB
1
HB
0.5
HB
In country A nobody is poor in urban areas, while everyone is poor in rural areas;
assuming equal population sizes the overall poverty rate is 0.5. In country B, the poverty
rates are the same, and suppose that H B  0.5. Now consider the following “opportunity
index”:
Oi  (1  H i )(1  I i ) i  A, B
Here H i is the headcount index of poverty (so 1  H i is the average opportunity
attainment rate) and I i is the index of inequality of opportunity; following Paes et al. (2009)
let this be:
Ii 
H iu  H i  H ir  H i
2H i
Verify that country B has the higher opportunity index despite a higher incidence of
poverty. This reflects the penalty that the opportunity index places on the much larger
disparity in opportunity fulfilment between urban and rural areas in country A (indeed I A  1
while I B  0 ). By contrast, if H B  0.5 then the two indices rank the countries same way.
24. Recall the Foster-Greer-Thorbecke (FGT) class of poverty measures. What does a higher
value of alpha imply? Why might this be preferable to lower order indices?
25. What is a “poverty map”? What are they used for?
26. Explain how you would use regression analysis to construct a model of poverty. What data
would you need? Why would this be more informative than a simple tabulation of poverty
measures by sub-groups?
27. What is the difference between transient and chronic poverty? Why might different policies
be needed for addressing these two types of poverty? What data are used to measure the two
types? What new concerns about measurement errors might arise with such data?
28. How is the poverty incidence curve constructed? Construct this curve for each of the
distributions in question 1. How can this curve be used to test for robustness? Why is the
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ranking of poverty lines and measures ambiguous when the poverty incidence curves
intersect?
29. You are asked to assess the poverty impact of a new antipoverty policy. The policy makes an
equal income transfer to all families financed by an income tax that rises with income. You
have a household survey that includes incomes. You assume that there are no behavioral
responses to the policy. By adding the implied transfer payment received net of the tax paid
to each income in the survey you are able to plot the cumulative distribution of income
before and after the policy change. You obtain the following graph:
Cumulative %
of population
with income
less than Y
After
(bold)
Before
(dashed)
Income (Y)
Z*
Which of the following is true? Explain your reasons.
a. The headcount index of poverty has fallen as long as the poverty line is less than Z*
but we cannot say for the Watts index, the poverty gap index or the squared poverty
gap index without more information.
b. The headcount index and the poverty gap index have fallen as long as the poverty line
is less than Z* but we cannot say for the Watts index or the squared poverty gap
index without more information.
c. The headcount index, poverty gap index and squared poverty gap index have fallen as
long as the poverty line is less than Z* but we cannot say for the Watts index without
more information.
d. All of the aforementioned measures have fallen as long as the poverty line is less than
Z*.
30. What does a growth incidence curve measure? What does an upward sloping GIC imply?
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31. What is meant by “pro-poor growth”? Consider alternative definitions.
32. What is the difference between an absolute and relative approach to identifying the “middle
class”?
33. What is meant by “vulnerability.” How is it different to poverty?
34. What is the concentration curve? How does it differ to the Lorenz curve?
35. You are asked to assess whether a new social policy has been cost effective in reducing
poverty in the country you are working on. What data would you collect to answer this
question? What measurements would you do? Discuss the strengths and weaknesses of each
measure you consider.
36. What is a multidimensional poverty index? List some examples of commonly used indices.
37. What dimensions of welfare does the Human Development Index incorporate? How does it
differ from the Multidimensional Poverty Index?
38. What are the trade-offs built into the Human Development Index? Give an example. Are the
trade-offs ethically defensible in your view?
39. There are four types of families in the country Labas, with equal numbers of each. Two of
them sell rice and two buy rice. One of the rice sellers is a farmer whose production of rice
depends on the rainfall. On average, half the years have normal rainfall, while half have a
drought, and this is well known to all.
In the base case, the rice farmer has an income of $10 per day in a year with normal
rainfall, but he earns nothing in the drought years. The other rice seller is a rice
importer, who owns no farmland, and can only make money if there is a drought or
flood, when he earns $10 a day by importing rice from abroad, while he gets nothing
in a normal year. The other two families have regular incomes from some other
source of $5 a day each, whatever the rainfall.
(a) An income survey is done in Labas, which happens to be in a drought year, and the
survey finds that the distribution of income is $0, $5, $5, $10. A researcher at Labas
university (one of those earning $5 a day whatever the weather) reports that the Gini
index is 0.375. The researcher determines that the poverty line is $5 a day, and that 75%
of the Labas population is poor. Discuss whether you think this is really indicative of the
extent of poverty and inequality in Labas. If you don’t think it is indicative, would it help
for Labas to do another income survey, in a year with normal rainfall?
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(b) Instead of doing another income survey, what might you expect if they did a consumption
survey instead? What would you find for inequality if consumption was simply each
person’s long run average income (averaging over normal and drought years? What about
poverty, again assuming that the poverty line is $5 a day? Suppose instead that
consumption in any year was given by half of that year’s income plus half of long-run
average income.
Now consider the following alternative scenarios to the base case.
(c) First, suppose that all incomes double in all years. In your view, has the extent of income
inequality changed in any given year? What about poverty? Explain.
(d) Second, suppose now that a new high-yielding breed of rice is introduced into Labas,
which doubles the output of the rice farmer as long as the rainfall is normal. Again,
nothing is produced otherwise. The farmer now exports half his output in a normal year,
selling the rest in Labas as before. The government taxes half of the farmer’s exports in a
normal year and transfers all of this to the poorest person that year in an attempt to fight
poverty in Labas. Discuss the implications for poverty and inequality. Discuss how your
answer might change if you had consumption data.
(e) Third, suppose instead that irrigation is introduced to Labas (at no cost). This means that
the rice farmer can produce some rice in a drought year, giving him an income of $5 a
day in those years, and $10 a day in normal years as before. This displaces half of the
importer’s income in the drought year, which falls to $5 a day. Discuss the implications
for poverty and inequality of this scenario.
(f) Finally, suppose instead that one of the two consumers figures out how to make the other
consumer hand over $1 per day, so their incomes become $4 and $6 a day in all years.
The rice sellers are unaffected. Discuss the implications for poverty and inequality.
CHAPTER 6: IMPACT EVALUATION
1. What is selection bias? What are some methods for reducing this type of bias?
2. What are spillover effects? Give an example of a spillover effect that might bias the results of
an impact evaluation.
3. Why are randomized control trials (RCTs) considered a good method for evaluating some
policies? What are some potential concerns about RCTs?
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4. How does the difference-in-difference estimator deal with the issue of selection bias? What
assumption is required?
5. What is meant by the difference between “internal validity” and “external validity”? Why
might heterogeneity in impacts affect external validity?
6. A country has had administrative (non-market) processes for allocating agricultural land.
Discuss the possible implications (potentially in both directions) for poverty of switching to a
market-based allocation system, based on private ownership.
7. What is the difference between an “ethically-contestable” and “ethically-benign” impact
evaluation?
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PART 3: POVERTY AND POLICY
CHAPTER 7: DIMENSIONS OF POVERTY AND INEQUALITY
1. What are the limitations of using market exchange rates in measuring global poverty and
inequality? How are those limitations addressed?
2. How has inequality changed since 1980? What component of inequality is this change mostly
due to?
3. What has been the trend over the last 30 years for the headcount index and the number of
people living under poverty lines at both $1.25 and $2 a day? What if China is excluded from
the calculations?
4. Can you say conclusively that poverty rates have fallen in the developing world for all
poverty lines and poverty measures up to the U.S. line between 1981 and 1999? Why or why
not?
5. In what region of the world has the least progress against poverty been made over the last 30
years? Where has had the most progress? What are some issues that Sub-Saharan Africa
faces in poverty reduction?
6. What is the definition of “middle class” in the developing world? How has the middle class
changed between 1990 and 2005?
7. Is the incidence of absolute poverty in the developing world higher in urban or rural areas in
general? Is the nominal urban poverty line typically higher or lower than the rural poverty
line? Why?
8. How do urban/rural poverty numbers vary across various regions? How have these numbers
changed between 1990 and 2008?
9. Explain the formula for the weakly relative poverty line. What are the two ways to interpret
the weakly relative poverty line?
10. What is the “truly global” poverty rate? How has it changed between 1990 and 2008?
11. What are some possible explanations for the convergence of poverty rates between high and
low-income countries?
12. Has there been any progress against relative poverty in developing countries between 1990
and 2008? How does the share of relative poverty in developing countries compare to the
share in developed countries?
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13. In what region of the world do we now find the highest incidence (%) of absolute poverty?
What about for total counts of poverty (Figure 7.19)? How has this changed between 1990
and 2008?
14. What is meant by the “poverty-inequality” trade off? Has there been such a trade-off in the
developing world? Explain.
15. Why are non-income dimensions of welfare important to consider, particularly for poverty
reduction?
16. How does schooling tend to vary by household income? Why might this be problematic for
long-term poverty reduction?
17. What are the two widely used measures for assessing the nutritional status of children? How
is adult nutritional status measured?
18. What is the Young Lives Project? What have been the main findings from this project?
19. What are some explanations that have been given for the rising obesity rates in the United
States, particularly among the poor?
20. Are birth rates for poor populations higher than for the wealthy? If so, what is a possible
explanation?
21. How does family composition tend to vary between the poor and non-poor in developing
countries? How does your answer depend on the way in which individual welfare is
measured?
22. Describe the issue of “missing women”. Are there regions in which this issue is more
prevalent?
23. What is meant by the “feminization of poverty”? What are some possible explanations for
this?
24. Why might high levels of crime and violence prevent poor people from escaping poverty?
25. Too much crime can lead to lower levels of productive activity. Consider the following
diagram that describes how criminal and productive worker wages change as the number of
criminals increase.
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wages
C
P
D
0
Criminal wages
Productive wages
Criminals + Productive Workers = 1
B
A
Number of Criminals
1
Suppose a society starts at point P. At which point would you expect it to end up, A, B, C
or D?
26. With reference to the same diagram, which of the following is false?
a. There are two stable steady state equilibria
b. A society at point C will eventually see a decrease in crime
c. A small increase in crime for a society at point A will get them to point B
d. Point B is an unstable equilibrium
27. The evidence for India suggests that the incidence of reported sexual violence within the
household tends to fall as material education rises, but it also falls with rising income. At the
same time, education tends to be positively correlated with income. How would you go about
researching which of these is the more important factor, higher income or better education
for women?
28. Consider whether you agree or not with the following statements, based on what you have
learnt in this chapter, and give a reason for your answer:
a. “Relative inequality in the developing world as a whole has been steadily rising since
1980.”
b. “Since 1980, rising inequality between developing countries has been more important
to the evolution of overall inequality than inequality within countries.”
c. “The incidence of extreme absolute poverty has tended to fall over time since 1980
but not enough to prevent rising absolute numbers of poor.”
d. “We should not be so pleased about falling absolute poverty counts because all those
people are living just above the line, and are highly vulnerable to falling back into
poverty.”
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e. “Absolute poverty is mainly a problem in the poor world while relative poverty is
mainly found in the rich world.”
f. “Higher child mortality tends to result in higher fertility.”
g. “For making cross-country comparisons of absolute poverty one must allow for
differences in the purchasing power of local currencies.”
h. “Pre-schools from age 3 or 4 are sufficient to make up for any disadvantages facing
children from poor families.”
i. “Taxing calorific and/or un-healthy foods will reduce their consumption and so make
people healthier and hence better off.”
j. “The problem of missing women is confined largely to Asia.”
k. “Allowing for economies of scale in consumption makes it less likely that femaleheaded households will appear to be poorer than male-headed households.”
l. “The institution of the extended family in Africa is generally able to provide effective
protection for widows.”
m. “Instead of the labels ‘developed’ and ‘developing’ worlds we should say ‘fat’ and
‘lean’ worlds.”
CHAPTER 8: GROWTH, INEQUALITY AND POVERTY
1. How is economic growth typically measured? What are some limitations in using this
measure as an indicator of progress?
2. Consider the production function in Box 8.2. What does the graph look like if there is some
(positive) kmin below which no output is possible? What about if there is a change in
technology (A)?
3. What is a “steady-state equilibrium”? What is a “stable equilibrium”?
4. How did early classical economists typically view the relationship between economic growth
and poverty? How does this differ from modern day views?
5. What is meant by “labor augmenting technical progress”? Give some examples of industries
both where technical progress is typically labor augmenting and not labor-augmenting.
6. Show that if the capital stock depreciates at a fixed rate  (so that Kt  (1   ) K t 1  I t 1 )
then the Harrod-Domar equation (Box 8.6) becomes: g  ( s / c )   .
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7. What is “underemployment” as distinct from “unemployment”? Why might
underemployment be a significant problem in developing countries?
8. Review Box 8.5. Show that w* 
(1  s )
. What can you say about the effect of a higher
1  (1  s ) r
interest rate on the steady state level of wealth?
9. How does the Lewis model explain economic development? What are the main criticisms of
this model?
10. Do you think it is it plausible that labor can be withdrawn from the rural economy without
any loss of rural economic output, as assumed by the Lewis model (Box 8.7)? How might
that happen? What does it assume about the behavior of those left behind?
11. What is the Kuznets Hypothesis?
12. How does the Harris-Todaro model differ from the Lewis model? Why would the rural wage
rate not be driven down to eliminate unemployment?
13. List some criticisms of the Harris-Todaro model. What happens when urban wages are
assumed to be flexible?
14. Show that an exogenous increase in the rate of investment will increase the steady-state level
of output in Solow-Swan model (Box 8.10).
15. How does Piketty define capital? What role does it play in his argument regarding the rise in
income inequality?
16. List some reasons as to why high inequality can limit economic growth.
17. Explain the term “initial distribution”. Why might the initial distribution matter for poverty
reduction?
18. How might credit market failure arise? Draw a graph that shows how borrowing constraints
can lead to a poverty trap.
19. Review the poverty trap model in Box 8.14. Discuss the dynamic gains from an exogenous
increase in wealth to people at different levels of initial wealth. How is inequality affected?
What about if income is redistributed from rich to poor?
20. What role do protection and promotion policies play in eliminating poverty traps? Explain
the difference between the two policies with the help of a poverty trap diagram such as in
Box 8.14. Why can there be poverty in society even if there is no one caught in a poverty
trap?
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21. What is a geographic externality and how does it contribute to a geographic poverty trap?
22. Consider the arguments for and against the following claim:
“…models with multiple equilibria do not provide satisfactory theories of development since
it is difficult to imagine a society remaining unable to coordinate on a simple range of actions
that would make all households (and firms) better off.” (Acemoglu, 2009, p.757)
23. Recall the simplest version of the Harris-Todaro model in Box 8.9 in which the urban
unemployed have zero income. Given the labor market distortion the equilibrium with free
mobility has urban unemployment, with attendant concerns about urban slums. The
distribution of income has a share of the workforce 1-Nf-Nr (the urban unemployed) at zero
income, a share Nr at wage Wr and finally the share Nf at the urban formal-sector wage rate of
Wf. Suppose that the government (possibly the urban government on its own) tries to prevent
this by restricting migration, such that only those who have urban sector jobs are allowed to
live in the cities. The distribution of income now has a share Nr at wage Wrmin and the same
share Nf at Wf. Draw the poverty incidence, poverty depth and poverty severity curves and
discuss the implications for comparisons of poverty between the free mobility and restricted
mobility.
24. In her book, Liberty’s Dawn, Emma Griffin writes that:
“Generations of historians have painted the industrial revolution in relentlessly dark colors:
a force which was wholly destructive for the poor, remorseless, unforgiving in its grinding
down of the independent labourer of old. This, clearly, is not the assessment of those who
lived through it.” (Griffin, 2013, p.).
How might you reconcile these different assessments without assuming that past historians
were simply wrong? Consider the alternative counterfactuals that different observers may
have in mind when they make their assessments.
25. How do researchers test the Kuznets hypothesis? Does the data support the hypothesis?
26. How do absolute and relative inequality measures tend to vary with economic growth rates?
What about absolute and relative poverty measures?
27. What empirical evidence is there on the link between urbanization and poverty reduction?
28. List some reasons why China has seen so such progress against absolute poverty since
around 1980.
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29. List some macroeconomic crises that have affected developing countries in recent years. Is
there evidence of lasting impacts of some crises?
30. Ferreira and Ravallion (2009) distilled the following “stylized facts” about growth and
distributional change from the available evidence:
Stylized Fact 1: Economic growth tends to be distribution-neutral on average in
developing countries, in that inequality increases about as often as it decreases in
growing economies.
Stylized Fact 2: Measures of absolute poverty tends to fall with economic growth in
developing countries.
Stylized Fact 3: The higher the initial level of inequality in a country or the greater the
increase in inequality during the growth spell, the higher the rate of growth that is
needed to achieve any given (proportionate) rate of poverty reduction.
Discuss each of these in light of your reading and what you have learnt.
31. Do you think we should add a new stylized fact, as follows?
Stylized Fact 4: High levels of initial level of inequality tend to harm future growth
prospects.
Explain your answer. What aspects of inequality are likely to matter and why?
32. Explain the cross-country growth regression model in Box 8.19.
33. What are some control variables that you should include in a growth regression? What
parameter would be affected if important control variables were excluded?
34. What is the hukou system? How might it have mattered to poverty reduction?
35. How did Brazil’s economic reforms from the 1970s onwards affect poverty and inequality?
36. How has India differed from China in reducing poverty?
37. Both China and India have seen uneven growth rates across regions and sectors. What are
these sectors? Why might this be a problem for further poverty reduction?
38. Over the years one has often heard, and one still hears today, many highly diverse opinions
about how the benefits of economic growth are distributed, including the following claims:
“The rich get richer and the poor get poorer.”
“Growth by-passes poor people.”
“Inequality must inevitably rise in the early stages of economic development.”
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“The rising tide of growth lifts all boats.”
Discuss each of these claims in the light of this chapter and your readings.
CHAPTER 9: ECONOMY-WIDE AND SECTORAL POLICIES
1. Why has the urban sector often been favored in development policy making? What are the
arguments for focusing more on the rural sector?
2. What factors have constrained China’s progress against poverty? What about India’s poverty
progress?
3. Why hasn’t urbanization in Sub-Saharan Africa been poverty reducing?
4. Why are land-use rights (and property rights in general) important for poor people? How can
land rights be enforced?
5. How did China and Vietnam differ in their approach to agricultural land-rights after
switching from socialist agricultural systems?
6. What is the typical relationship between income per-person and health outcomes?
7. How might user fees discourage poor people from seeking healthcare?
8. Why can access to piped water improve health outcomes? Why might it not be as effective in
reality?
9. Consider the figure in Box 9.2. Why is school enrollment nonlinear? Find the stable and
unstable equilibria and circle the area where a “trap” may occur.
10. Recall the model sketched in Box 9.2 on social norms in girl’s schooling. What data might
you collect to assess whether this model is valid?
11. What are some arguments for compulsory schooling? Under what conditions may
compulsory schooling actually hurt the poor?
12. How did East Asia benefit from a broad-based educational system? Contrast East Asia’s
experiences with India’s.
13. Why might a public information campaign to teach people their rights under the law work
better in some settings than others?
14. Describe the intervention that utilized the movie as a way to teach people about NGRES.
What were the impacts of the movie on awareness? Did people typically retain information
about the scheme?
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15. Describe the findings of Card and Krueger’s study on minimum wages in America. What are
some other effects (aside from employment) that a higher minimum wage rate might have?
16. What is the aim of rent controls? Why might they not work as intended?
17. Describe the standard trade model based upon comparative advantage. What goods will a
country import and export? How might trade under this model lead to a reduction in poverty
and inequality? Under what circumstances might trade lead to an increase in inequality?
18. Explain the cross-country regression model for testing whether trade openness benefits an
economy. Has trade volume been found to be a significant predictor of growth? Why might
trade volume be an endogenous variable?
19. What econometric model would you use to evaluate welfare impacts of price changes due to
a trade reform? Why is it important to consider vertical and horizontal impacts?
20. How did China’s accession to the WTO impact poor people? Who tended to gain from this
accession and who tended to lose?
21. In the title to the Ivanic et al. (2011) paper referred to in Box 9.5 they refer to these as “shortterm” impacts of the global financial crisis on poverty. What reasons can you think of as to
why the longer-term impacts could differ from those implied by their calculations?
22. What were the main findings from the Morocco trade policy simulations?
23. Why would a protectionist trade intervention help protect against external price shocks?
What are some alternative policies that could be used to protect against these shocks without
causing substantial price distortions?
24. List some reasons why external aid hasn’t had more of an impact on poverty.
25. What are “fungibility” and “flypaper” effects? Why is fungibility important in determining
the impact of external aid?
26. Re-draw Figure 9.1 for the case in which the leader’s social preferences entail that some of
the aid targeted to the poor is displaced, but so that there is still a net gain to poor people.
27. What are the main findings related to aid and economic growth?
28. What is the “Washington Consensus”? List some of the major criticisms of the consensus.
29. What is a structural adjustment program? Does this necessarily hurt poor people?
30. What is “capital flight” and why is it a problem for developing countries?
31. How does the quality of institutions tend to vary by a country’s GDP? What are some of the
long run economic costs of poor institutions?
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32. Explain the concept of a “poor institutions trap”.
33. Why might cutting aid assistance in response to a political shock exacerbate long-term
institutional development?
CHAPTER 10: TARGETED INTERVENTIONS
1. What is a “social safety net” (SSN) policy? On average, have SSN’s been effective in
reaching the poor in poor countries? How does this differ to rich countries?
2. What is the (approximate) aggregate poverty gap for the developing world in 2010 (for a
poverty line of $1.25/day)? How is this gap calculated? Discuss why the cost of eliminating
poverty could be much greater than the aggregate poverty gap.
3. Explain what is mean by the “information” and “incentive” constraints on antipoverty
policies.
4. Give an example of a policy with a 100% marginal tax rate.
5. Why would self-targeting policies be more appropriate for developing countries with a large
informal sector?
6. What is a “basic income guarantee” (BIG) scheme? How does it differ from perfect
targeting?
7. What are the welfarist and non-welfarist interpretations of BIGs? Why might this type of
scheme be difficult to implement?
8. In the example in Box 10.3, the BIG does not eliminate poverty. What would a BIG that did
so look like?
9. Show how the distribution of income in an economy changes when a BIG is introduced,
funded by a proportional tax on income.
10. Why might perfect targeting undermine any broad political consensus for an anti-poverty
policy? Why might information constraints make perfect targeting impossible?
11. What is meant by “leakage” with regard to SSN’s? Explain the model presented in Box 10.4
and why fighting corruption can sometimes backfire and reduce the benefits of a policy.
12. What is meant by a “state-contingent” SSN? Give an example. Why might this type of policy
create severe fiscal stresses?
13. What is the difference between “social insurance” and “social assistance”?
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14. What is the difference between a cash versus in-kind transfer payment? What are arguments
for and against in-kind payments?
15. What is “community-based targeting”? How could a poor administrative structure actually
lead to more leakage?
16. What is a CCT? How many developing countries currently have a CCT program? What
incentive effects are built into a CCT? How do CCTs address distributional issues within the
household?
17. Why might CCTs be considered paternalistic policies? Is this concern legitimate in your
view?
18. What can you say about the effect of a CCT on the amount of child labor?
19. What is a workfare scheme? List some countries that have adopted workfare schemes in
recent decades.
20. Employment Guarantee Schemes (EGSs) are an important type of workfare program. Why
are these schemes seen as a mechanism to enforce a minimum wage rate? How does an EGS
differ from minimum wage legislation?
21. Explain why land reforms might help reduce poverty. Why do you think this type of reform
is not utilized more?
22. What role can microfinance play in alleviating credit market failures? Describe the Grameen
Bank (GB) in Bangladesh. What are the ways in which this scheme might be expected to
reduce poverty?
23. What is a “poor-area development program”? Why might poor-area development programs
displace local government spending? What are the implications for an impact evaluation of a
poor-area program?
24. Why is selection bias an issue in evaluating poor-area programs? (Recall selection bias from
Chapter 6.) How can you correct for this bias? Why might some types of households benefit
more than others from such a scheme? What are the implications for evaluating such a
program?
25. Recall Peter Bauer’s comment that: “If…the conditions for development are not present then
aid … will be necessarily unproductive and therefore ineffective.” (Bauer, 1971, p.98). Based
on this chapter and your readings and observations what would you identify as the required
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“conditions for development” for aid to work on one or more specific countries of your
choosing?
CASE STUDY: WORKFARE IN INDIA
Note: This topic was discussed in lectures but was largely omitted from EOP.
1. Describe India’s NREGS. In what sense is it a rights-based scheme?
2. How were participation rates in NREGS across states correlated with poverty rates of these
states? What are the reasons for this correlation? Is employment being guaranteed?
3. Did NREGS succeed at targeting the poor? What type of correlation could you run to
determine the answer to this?
4. Why might an increase in the fines paid by corrupt official on NREGS when caught lower
employment on the scheme? What is an alternative way to reduce corruption and leakage on
such a scheme?
5. What are the arguments made for workfare programs as antipoverty policies?
6. Why might the net gain to a household from participating in workfare be less than the
workfare wage? Why is this relevant to assessing the cost-effectiveness of workfare as an
antipoverty policy?
7. What is the maximum percentage reduction in Bihar’s Rural Employment Scheme (BREGS)
if all idealized assumptions are met? Why is actual poverty reduction likely to be much
lower?
8. What is India’s “below-poverty line (BPL)” card? Are they more or less well targeted than a
BIG?
9. How did BREGS’s reduction in poverty compare to counterfactuals considered?
10. Draw a figure that represents why administration costs/capacity may lead to rationing.
Indicate the minimum demand that must be met before any work is provided. What are some
ways to reduce this minimum?
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